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Britain was back in recession after the economy shrank again in the first quarter but the government insisted on sticking by its deep spending cuts despite concerns they undermine growth.

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Britain's gross domestic product (GDP) contracted 0.2 percent
between January and March, following a fall of 0.3 percent in the fourth quarter
of 2011, the Office for National Statistics said.

A recession is defined as two successive quarters of GDP
contraction.

"We are in a difficult economic situation in Britain," Prime
Minister David Cameron said in reaction to the data.

"Just as you see now recessions in Denmark, in Holland, in Italy,
in Spain, that is what is happening in the continent that we trade with. What is
absolutely essential is we take every step we can to help our economy out of
recession," Cameron told parliament.

The economy has taken a major hit from weak output in the
construction and manufacturing sectors, as well as from deep government spending
cutbacks and fallout from the debt crisis in key trading partner the
eurozone.

Britain's Conservative-Liberal Democrat coalition has implemented
huge cuts to public spending and raised taxes in a bid to slash a record deficit
inherited from the previous Labour government in 2010.

Labour leader Ed Miliband on Wednesday accused the coalition of
implementing a "catastrophic economic policy," adding that it was Cameron's
"plan for austerity, his cutting too far and too fast, that has landed us back
in recession."

Cameron insisted that such austerity was vital to keep state
borrowing costs low, preserve Britain's top AAA credit rating and avoid a
sovereign debt crisis that has crippled the eurozone, of which Britain is not a
member.

"More borrowing, more spending more debt, that is what caused
these problems. It cannot be the solution to these problems," the Conservative
party leader insisted.

"We must not put at risk the low interest rates that are
absolutely essential to our recovery ... These are difficult decisions to get on
top of debt and public spending but they are the right decisions," he added.

Highlighting the extent of Britain's own debt strains, official
data on Tuesday showed public sector net debt as a percentage of GDP --
excluding the cost of bank bailouts -- hit a record high 66 percent in
March.

Wednesday's GDP figures meanwhile confounded most analysts'
expectations for growth of 0.1 percent in the first quarter after retail sales
rebounded a strong 1.8 percent in March from February.

"Today's preliminary data showed a small decline in GDP of 0.2
percent in the first quarter of 2012, implying a mild technical recession," said
John Hawksworth, chief economist at accountancy group
PricewaterhouseCoopers.

"However, these are only very preliminary data and there are
reasons to believe that they could ultimately be revised up."

Britain's economy clawed its way out of a record-length recession
in the third quarter of 2009 following a downturn sparked by the global
financial crisis but never managed to post a solid recovery.

To help Britain exit its last recession, the Bank of England
slashed its main interest rate to the current record-low 0.5 percent in March
2009, when it also embarked upon Quantitative Easing.

Under QE, the central bank creates new cash that is used to
purchase assets such as government and corporate bonds in the hope of boosting
lending by retail banks and in turn growing the economy.

The Bank of England has pumped £325 billion into the economy
since beginning the stimulus programme more than three years ago.